Abstract

Recent debates concerning personal income tax reform have been dominated by microeconomic considerations such as the impact of marginal tax rates on labour force participation and the interactions between tax and social policy. In contrast, the task of managing the macroeconomy has been left to central bankers and monetary policy. However, after 15 years of economic expansion in Australia there is growing awareness of the short-run "liquidity" effects of fiscal policy - or what Richard Musgrave described as the "stabilisation" role of taxation policy. This paper argues that for the first time in almost two decades these factors are influencing the Australian tax policy debate and are effectively limiting the prospects of radical tax reform.